Preventing Systemic Risks Will Become the Primary Goal of the Fed's Efforts During the Year, and Hedging Assets Could Benefit from Profound Changes

Eva Chen

Commodity

Central Bank

Economic

Summary:

Gold prices have fallen from their annual highs as global banking jitters (now) have passed away and U.S. Treasury Securities yields have found a bottom. Nevertheless, the risk sentiment does not seem to have been completely released. Preventing the risk of the contagion of the Silicon Valley Bank crisis may become the first objective of the Federal Reserve's efforts during the year.

BUY XAUUSD

Close Time

CLOSED

1940.00

Entry Price

2003.00

1927.00

4208.17 +10.26 +0.24%

630.0

Pips

Profit

1927.00

2003.08

Exit Price

1940.00

Entry Price

2003.00

Fundamentals

Gold rallied below a one-year high of US$2,009 after bulls broke the psychological threshold of US$2,000 on Monday. The fear that the global banking crisis is deepening has triggered a strong risk aversion, prompting investors to take refuge. Gold prices soared.

Last weekend, UBS took action to acquire the troubled Credit Suisse, easing the investor's nervousness slightly, but not restoring confidence completely; Before investors wait for unpredictable events to happen, the market environment is still fragile, and the risk aversion model is still functioning.

Apart from the banking crisis, investors are now turning their attention to the Federal Reserve, which will begin a two-day policy meeting today and announce its decision on Wednesday.

The initial optimism at the beginning of last week (a 50-basis-point hike) was offset by negative signals that the financial system was brewing a bigger crisis, during which markets speculated that a longer hike and tighter policies could accelerate to contain persistently high inflation.

The market now sees the Fed taking a more cautious approach, with the general expectation now that the probability of a 25-basis-point rate increase, rather than a constant rate increase, will drop. If this is the case, then FONC may have more information about the crisis and realize that raising interest rates, in this case, would aggravate the situation.

Some U.S. media speculated that more U.S. banks are facing increased risks. People are increasingly worried that large-scale withdrawals of deposits will trigger a domino reaction and lead to more bank failures.

Under one after another storm, the market worries about the spread of financial risks intensified. Against this background, as a hedge asset with natural credit endorsement, gold has become the first choice for many investors to avoid risks. In this regard, we believe that the price of gold will continue to rise, and it is expected to maintain a long-term bull market. We believe that guarding against the risk of contagion from the Silicon Valley Bank crisis will be the Fed's top priority for the year (previously inflation was its top priority) and that the Fed's monetary policy is expected to become milder later, which will help keep gold prices rising. We also believe that the current global monetary policy system faces profound changes and that demand for gold, as a reserve asset, is rising systematically.

XAUUSD: Preventing Systemic Risks Will Become the Primary Goal of the Fed's Efforts During the Year, and Hedging Assets Could Benefit from Profound Changes_1

Technical Analysis

Gold has been on a sharp upward trend since early March due to the continued turmoil in the banking sector in developed economies, and broke the psychological threshold of $2,000 on Monday for the first time. Although the current price is overbought, the bullish daily and weekly technical patterns help the overall positive outlook.

In addition, the psychological threshold of US$ 2,000 is a very important breakthrough barrier, and it is unlikely to be able to successfully stand above this threshold after the first attempt. Momentum indicators also indicate that the recent rebound may be excessive as both RSI and MACD strengthened in the overbought zone. Therefore, the potential downward revision is in line with the current price movement model. However, the current easing is seen as a new upward orientation. If the gold price crosses the threshold of US$ 2,000 again, the August 2020 resistance level of 2016 may initially limit its upward space. After overcoming this obstacle, bulls will challenge the US$2,059 level set in March 2022.

On the other hand, if the bears re-emerge and push prices lower, the near-term resistance level of $1,959 could become primary support. If that level is lost, further declines could be supported in the US$1,933 range, which overlaps with the 50-day SMA.

Overall, a further correction is inevitable after a short-term breakout above the US$2,000 level, but (as I mentioned earlier) the bulls will not stop there, and another short-term test of the US$2,000 level will be part of an overall corrective rebound. It is recommended to buy in at the lows.

Trading Recommendations

Trading direction: Long

Entry price: 1940

Target price: 2003

Stop loss: 1927

Deadline: 2023-04-03 23:55:00

Support: 1935, 1920, 1900

Resistance: 1985, 2000, 2016

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